Angels thriving, but still a gap in the VC space

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Startups in New Zealand recorded an unprecedented level of funding last year, with $86 million flowing into early-stage businesses, according to the latest Young Company Finance Index, published by PwC New Zealand, the Angel Association of New Zealand (AANZ) and the New Zealand Venture Investment Fund (NZVIF).

Of the $86 million invested into young companies in 2017, more than half ($49 million) came from angel investment networks, rather than individual funds or institutional investment.

But a key problem remains at the next stage. The venture capital sector remains thin in New Zealand, meaning it can be difficult for startups to make the transition required to grow into successful national and international businesses, says Bill Murphy, executive director of the Bay’s Enterprise Angels, the country’s biggest angel funding group.

PwC New Zealand partner Anand Reddy said early-stage investments were almost three times the level of five years ago.

“We’ve seen success stories like exits from TradeMe that created a whole new generation of angel investors.”

Driving the growth in investment dollars is an increasing number of larger deals in 2017, compared with the previous year. While the number of deals in 2017 held steady at 111 – one lower than in the previous 12 months – the total amount invested has risen by $18 million, a 26 percent increase.

AANZ chairman John O’Hara said that reflected a maturing ecosystem.

“A number of the ventures angels have backed are now looking for larger capital injections to fuel their growth. With a thin VC industry, it’s not surprising we are seeing larger deal sizes in our part of the market.”

NZVIF chief executive Richard Dellabarca said one of the reasons for the surge was that investors were seeing higher quality deal flow from aspirational entrepreneurs seeking to address global opportunities, not just New Zealand-focused or lifestyle businesses.

“With the mandate changes to NZVIF’s Seed Co-Investment Fund last year, we are seeing this quality deal flow from both angel groups and also individual angel investors,” says Dellabarca.

“The next challenge is to address the paucity of domestic venture capital.

“As we see an increase in the volume of quality companies in the pipeline, the ownership of our promising high growth companies is shifting offshore in the absence of a local institutional investor market.”

Enterprise Angels’ Murphy said the early stage sector was definitely getting stronger.

“We are getting better at being able to assist companies to get that post-angel funding,” he said.

“Unfortunately in New Zealand there’s a huge gap – a valley of death so to speak.

“You can see it at the microcosm level here in the Bay, where we have WNT Ventures at the pre-revenue stage,  Enterprise Angels, and then Oriens Capital offering expansion and buyout capital. But there’s really nothing much in between Enterprise Angels and Oriens.”


Software the top sector

More than half the investment made in early stage companies last year was in the software and services space (53.8 percent), followed by technology hardware and equipment (17 percent).
– Young Company Finance Index

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David Porter

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